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Currency Market Analysis

Dec 02, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar fared mixed but mostly stronger on tentative signs of a stabilizing global economy. The buck firmed against most rivals from Europe, Japan and Canada. However, nascent signs of stabilization in China boosted the Aussie and kiwi dollars whose economies are closely tied to the world’s No. 2 economy. Factory data from China and Europe showed improvement which helped to temper concerns about moderating global growth. The buck’s quick start to December may hinge on a slew of U.S. data this week. Today brings numbers on manufacturing and construction spending. The week’s marquee release will be America’s November employment report on Friday that’s forecast to show a faster pace of hiring. Canada will be another focal point when the country’s central bank Wednesday issues its final policy decision of the year.


The Aussie and kiwi dollars outperformed the otherwise firmer greenback after data showed that a gauge of Chinese manufacturing improved and grew at the fastest rate in two years. The data offered tentative hopes that the world’s No. 2 economy may have weathered the worst of the slowdown. Key for the Aussie will be what the country’s central bank does with interest rates overnight. Forecasts call for the Reserve Bank of Australia to leave its base rate parked at an all-time low of 0.75% on Dec. 3.


Canada’s dollar softened ahead of Wednesday’s local interest rate decision. The market currently shows about a 75% chance of the Bank of Canada keeping its main lending rate unchanged at 1.75%. No change but dovish rate guidance would strengthen the case for an insurance rate cut by the end of the first quarter of 2020. Odds currently show about a 40% likelihood of a quarter percentage point rate cut to 1.50% by March after data last week showed that Canada’s economy slowed to a 1.3% annual pace in the third quarter from 3.5% in the second quarter.


Sterling stumbled out of the December gates as political factors weighed it down. The latest polls suggested a reduced lead to less than double digits for the Conservatives over Labour ahead of Britain’s general election next week whose outcome could help determine the next step in the Brexit stalemate. Losses for the pound were limited by better news on U.K. manufacturing whose pace of contraction slowed last month.


The euro was little changed Monday after slumping Friday to seven-week lows. The euro steadied on nascent signs of stabilization in the world economy. Euro sentiment remains fragile at best given continued divergence in prospects for U.S. and European growth. Data last week showed that euro zone unemployment improved a tick to 7.5% in October, the lowest in more than a decade, but a level still more than double America’s comparable rate of 3.6%.

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